Ecosystems in Action: Zendesk

Zendesk may just be ahead of its time. The customer service champion launched Zendesk Marketplace in 2012, well before B2B marketplaces became mainstream. Today, Zendesk runs a massively successful marketplace that features complementary apps, integrations, and a catalog of partners focused on helping businesses integrate Zendesk solutions. The Zendesk Marketplace is home to 1,400 apps and 1,000-plus ecosystem partners. Not only that, 50 percent of Zendesk customers are using more than one app. In total, 85 percent of Zendesk’s entire book of business comes from customers using one or more technology partner integrations! With the API-first ecosystem model, the company has increased customer stickiness, improved customer lifetime value, and lowered customer churn.

So, how did Zendesk build a successful partner ecosystem? How does Zendesk’s approach stack up to recommendations from industry experts? We talked to Tim Marsden (Senior Director, Technology Partner Ecosystem at Zendesk) about how the company established a winning partner ecosystem and started and scaled its value-based B2B marketplace.

Clarify your marketplace strategic priority

Whether you’re a leading software company or a service provider, marketplaces are a dynamic engine for increasing market share. According to McKinsey’s most recent Global B2B Pulse report, nearly 72 percent of companies that launched a marketplace experienced market-share growth over the past two years. For software companies, most marketplaces are anchored by technology integrations from partners. That’s because software vendors are under tremendous pressure to create new products and services faster and more cost-efficiently than any other time. Facing similar challenges, the Zendesk team crystalised the strategic priority of its marketplace: extend solution value to customers.

Applying an API-first strategy

Defining this primary objective helped inform Zendesk’s decision-making throughout its marketplace journey. Next, the team evaluated marketplace frameworks and asked questions to refine value areas of the marketplace.

• What product and feature enhancements are our customers asking for?
• What’s our technical readiness in meeting customer demand?
• Do we take a marketplace participation approach and show up in partner marketplaces as well?

Zendesk moved forward applying an API-first technology strategy. Marsden explains:

“An ecosystem-driven portfolio strategy isn’t the future, we’re already there. You have to balance both, asking, ‘Is that a core capability we build? Or does it make more sense to integrate with a partner solution?”

By tapping into external resources, including its tech partner community, Zendesk captures innovation and promotes growth by adding functionality that customers might want Zendesk to provide.

“The drivers behind our ecosystem really came down to customer demand and technical readiness,” says Marsden. “We recognized the importance of taking an API-first technology strategy and identifying which partners customers wanted to integrate with the most.”

Marketplace orchestration + participation

While a marketplace orchestration framework centers on extending solution value through a digital marketplace, participation increases exposure to solutions by growing channel reach. This includes expanding the visibility of product functionality and integrations to joint customers through external marketplaces and tapping into their go-to-market teams. Zendesk joined Shopify’s marketplace early on, and recently the AppSmart Marketplace. Participation drives sales pipeline and revenue further than an orchestration-only marketplace strategy.

Zendesk Marketplace by the numbers:

• 235 - The number of new apps added to Zendesk marketplace in 2021
• 16% - Partner integration growth rate
• 32,000 - New customer installs of apps and integrations in 2021
• 50% - Customers using more than one app
• 85% - Zendesk’s entire book of business comes from customers using one or more partner integrations
• Zendesk also participates in 2 Marketplaces: Shopify and AppSmart

Four chief value areas of the Zendesk Marketplace:

1. Extends solution value—With its marketplace, Zendesk extends its product functionality to meet customer demand and deliver the most robust value possible.
2. Increases brand awareness—The customer service giant leverages technology partners’ marketing engines to increase brand awareness and reach new customer segments.
3. Accelerates go to market—Leaning on technology partners' influence, expertise, and integrations, Zendesk is winning additional business and increasing deal size.
4. Drives customer success—A compelling benefit of the marketplace is improved customer lifetime value and enabling greater customer success. Marsden highlights some of the biggest benefits: "We have data that shows our API-first marketplace approach ultimately increases retention because the more apps a customer installs with their Zendesk solution the stickier they are. ARR goes up, churn decreases, and there’s longer customer lifetime value—all critical benefits of the ecosystem."

Consider Gartner's recommendations

This API-first marketplace strategy creates an equitable environment for partners and ultimately drives joint customer success. By sharing APIs, all parties can innovate faster and expose brands to more significant opportunities than either can achieve alone. Gartner outlines its top recommendations for digital commerce initiatives in its 2022 marketplace operations report.

• “Develop a strategy for the marketplace before beginning a project to select a vendor. The size of the marketplace, the types of products and services sold, integration with existing systems, and plans for operations and locations will influence vendor selection.”

• “Consider the ways that sellers will add their products to the marketplace. Some vendors offer prebuilt connections to digital commerce platforms and/or APIs for product ingestion. If the marketplace will predominantly rely on sellers with product data stored in these systems, consider vendors that offer this functionality.”

• “Gain C-level buy-in before initiating marketplace projects. Offering an enterprise marketplace is not a simple technology investment; it is a fundamental business model change that will alter the customer experience of buyers, and it must be supported by all levels of the organization to be successful.”

• “Assess the feasibility of a marketplace model in the company culture before beginning such a project.”

Biggest lessons learned

After 10 years, thousands of technology partners, and 1,400 marketplace apps, Zendesk outlines its principal lessons learned for its marketplace journey. Other software companies ready to jump into the marketplace deep end should take notice.

Get internal traction—Software companies need to articulate the value of the partner ecosystem to internal teams. Marsden explains:

"Having data around your most purchased integrations and translating that into business value for your leadership team is a must. The ability to demonstrate that customers buy more products—whether their internal products or third-party products—have a higher annual revenue rate ultimately will build your business case, establish traction and keep the marketplace growing."

Build marketplace momentum—It’s important to stay strategic and take a phased approach. By mapping each decision to critical marketplace priorities, software companies can build marketplace momentum.

"Understand what's in high demand, whether it's integration or resale products, and onboard those first, focusing your energy on GTM for a few solutions,” says Marsden. “Then, once you have traction internally and with customers, you can work on scaling up and streamlining processes within your ecosystem."

Take care of technology partners—When it comes to your marketplace, usability matters for developers just as much as it does for customers. Remember that the developer experience is every interaction related to APIs. It also includes documentation and the usefulness of development tools. When you take care of developers by creating an API, tool, or workflow that is elegant and well thought out, the word will spread, ultimately compounding growth.

"It's less about volume, and more about having the right partners and delivering the right experience," says Marsden. "If we didn't invest in our APIs or our developer journey, they wouldn't see value from the marketplace. Our success comes from customer demand first and then giving partners a great onboarding experience, providing support, helping monetize integrations, and finding ways to raise their visibility on the marketplace."

Iterate, move towards a value-based ecosystem

After 10 years of building its partner ecosystem and marketplace, Zendesk continues raising the bar. The company recently formalized its Technology Partner Program. The program delivers increased benefits based on partners’ proactive engagement and investment in the Zendesk Marketplace and in joint customers. Those partners that provide the most value have the largest opportunity for joint development, go-to-market collaboration, marketing, lead generation, co-selling, and business planning. Marsden explains:

“Today with a formal partner framework, we can clearly understand where we want to focus investments so that those partners that deliver the most value get the most back. That way, we demonstrate that we have a very much give-and-take, value-based ecosystem.”

Ready to set out on your marketplace journey? Dive deeper and start building your strategy by downloading our new Software Ecosystem Playbook, “How Industry-Leading Software Companies Create Best-in-Class Marketplaces.”